Feb. 8 (Bloomberg) -- The potential for U.S. and foreign
regulations to reach across national borders and create
overlapping or conflicting rules is gaining urgency as global
authorities seek to complete rules this year to prevent a repeat
of the 2008 credit crisis.

The U.S. is facing increasing criticism from Canadian,
British and European Union regulators over the possibility that
the Volcker rule ban on proprietary trading would restrict
foreign sovereign debt markets while exempting U.S. government
debt. At the Commodity Futures Trading Commission, meanwhile,
regulators are facing pressure from JPMorgan Chase & Co.,
Barclays Capital and foreign regulators to limit the
international reach of Dodd-Frank Act derivatives regulations.

“There is a perfect world somewhere where there is totally
consistent financial-services regulation from one end of the
globe to the other, but we’re a long way from that,”
Representative Jim Himes, a Connecticut Democrat and co-author
of legislation defining the reach of Dodd-Frank derivatives
measures, said in a telephone interview. “At the end of the
day, if our regulation is more stringent, there will be a
natural competitive disadvantage.”

The House Financial Services Committee held a hearing today
on the international reach of the 2010 Dodd-Frank Act. JPMorgan
Associate General Counsel Don Thompson told lawmakers that the
rule would have a “significant disadvantage” if it affects the
bank’s foreign subsidiaries without reaching overseas rivals.

“Although this varies from quarter to quarter, we often
derive as much as of our revenues from our global operations as
from those in the United States,” Thompson said in testimony
prepared for the hearing.

No Consensus

U.S. and foreign regulators, who say they are working to
coordinate rules, haven’t reached consensus and in some cases
haven’t yet proposed policies to seek public comment before
adopting final measures. The Volcker rule begins to take effect
in July, while U.S. regulators are already more than eight
months past Dodd-Frank’s deadline for new derivatives rules.

Michel Barnier, the European Union’s financial services
commissioner, is planning to discuss the reach of the Volcker
rule with Treasury Secretary Timothy F. Geithner when he visits
the U.S. on Feb. 23, said Chantal Hughes, a spokeswoman for
Barnier.

“I am concerned that the regulations could have a
significant adverse impact on sovereign debt markets, including
here in the U.K.,” George Osborne, Britain’s Chancellor of the
Exchequer, wrote in a letter to Federal Reserve Chairman Ben S.
Bernanke.

Banks’ Support

The foreign regulators’ opposition to the reach of the
Volcker rule has been supported by Barclays, the Association of
Banks in Singapore, Toronto-Dominion Bank and Royal Bank of
Canada, among other banks that have filed comment letters with
U.S. regulators.

Representatives for Mitsubishi UFJ Financial Group Inc.
raised concerns about the effect of the Volcker rule on trading
in Japanese government debt markets during a Jan. 23 meeting at
the Fed, according to a summary of the meeting.

Regulators from the G-20, a group of the world’s richest
nations and the European Union, agreed on broad principles of
new derivatives regulation at a 2009 meeting in Pittsburgh. Gaps
have emerged since over the substance and timing of the
regulations, with differences emerging over new limits on
speculation and requirements for new trading facilities.

The CFTC and Securities and Exchange Commission said in a
153-page report last week that it is “still too early to
determine precisely where there is alignment internationally and
where there may be gaps or inconsistencies.”

Risk, Transparency

The CFTC and SEC are aiming to complete Dodd-Frank
regulations that are designed to reduce risk and boost
transparency in the $708 trillion global swaps market. Both
agencies haven’t proposed guidelines for the international reach
of the rules.

“The London markets have good regulations. The European
markets have regulations. I just don’t know that we ought to try
to regulate every market from the United States,”
Representative K. Michael Conaway, a Texas Republican who leads
a subcommittee that oversees the CFTC, said in a telephone
interview yesterday.

Representative Stephen Lynch, a Massachusetts Democrat,
said an exemption for derivatives trades at U.S. banks’ foreign
affiliates would create a “huge escape hatch” from Dodd-Frank.

“You’re planting the seeds for the next crisis,” Lynch
said at the hearing today.

Thompson said the law includes provisions regulators can
use to target potential evasions of the law. He said the ability
of a bank to move from one jurisdiction to another is “wildly
overstated.”

Global regulators agreed last year to set up a group to
coordinate collateral requirements for derivatives that aren’t
guaranteed by clearinghouses. In the U.S., the Fed, Federal
Deposit Insurance Corp., CFTC and other regulators have proposed
the margin requirements. In Europe, the European Securities and
Markets Authority, European Banking Authority and European
Insurance and Occupational Pensions Authority aim to set up
similar requirements, Hughes said in an e-mail.

The global regulatory group aims to agree on a final report
on the margin requirements by the end of 2012, she said.

“This report will be used by the U.S. and the EU to
finalize their respective requirements and ensure a level-playing field for their respective market players,” she said.